Investors React To Tariff Announcements

Global stocks tumbled after the recent tariff announcements on April 2nd. Some of the most severe forecasts weren’t drastic enough as the average tariff rate based on levies announced recently would exceed the Smoot-Hawley Tariff Act levels of 20% and represent the highest tariffs in over 100 years.

China was hit the hardest with new tariffs stacked on top of previous tariffs, resulting in a 54% tariff on Chinese imports. While Canada and Mexico were left out of the 10% universal minimum tariff, they will ultimately transition to 10% with exemptions as the USMCA is renegotiated.

The current tariff plan likely represents a shift for markets to quickly move from max uncertainty to max pessimism, although if countries retaliate — and Europe and China are talking like they will — rates could go up even further and drive another leg down for markets.

The next week will be critical as the highest tariff rates go into effect on April 9th. Stocks should stabilize once negotiations start to bear fruit and take rates down, assuming it's clear to markets that no meaningful tariff rates will be increased beyond what was recently announced in retaliation.

Services-oriented and more domestic businesses could be relatively better positioned in the current environment. However, if recession odds rise as more job losses come, and rates don’t fall much because of tariff-driven increases in inflation expectations, even the most defensive, income-oriented areas of the equity market are vulnerable.

Technology hardware and apparel retail may be among the most affected with heavy reliance on Asian production and materials. Healthcare services, media, software, and regulated utilities might be expected to hold up better than the broad market. Semiconductors and pharmaceutical sectoral tariffs were excluded, at least for now.

LPL Research believes the S&P 500 earnings per share (EPS) could be hit by 5% or more. Unless negotiations yield results, the consensus forecast for 2025 S&P 500 earnings is likely to slip from $268 to $260 in the weeks ahead. The $260 estimate, which is now at greater risk, continues to factor in economic growth this year, not recession.

What's Next?

We are expecting volatility and market pessimism to continue. We have been taking a more conservative posture in our actively managed models in anticipation of the April tariff announcement. Our team continues to pay close attention to market signals in an effort to make wise and appropriate choices that align with our client's investment objectives.

If you have specific questions or would like to discuss your own investment strategy or financial planning needs, we welcome you to call us at 302.234.5655 or email us at contactus@covenantwealthstrategies.com to set up time to discuss further.

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This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

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This Research material was prepared by LPL Financial, LLC, FactSet.